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Ukraine needs an ambitious new Marshall Plan from Europe

The last 75 years of freedom, peace and prosperity in Western Europe are due in large part to the US decision to fund the continent’s post-war reconstruction. The Marshall Plan, named after the US Secretary of State who created it, offered financial help – mostly grants – to alleviate the capital and liquidity shortages that had prevented Europe from growing on its own.

Today Europe is able to do the same for Ukraine. We should not wait for the country to find peace: The reconstruction must now be prepared. Last week, the think tank Center for Economic Policy Research released a excellent blueprint for just such a plan.

Marshall’s accomplishment was to equip the receivers for broader prosperity than before the war. As the authors of the new plan – prominent Ukrainian, Russian and Western economists – write, the goal today should be nothing less: “The cornerstone of Ukraine’s success [is] to radically modernize the country.”

To achieve this, they advocate six principles. First, Ukraine must be prepared to qualify for EU membership. Second, management of recovery funds and planning through a new EU-funded entity. Third, leave sufficient control in the hands of Ukraine. Fourth, promoting the inflow of foreign capital and technology. Fifth, use grants rather than loans. And sixth, Build back better – Rebuild with a zero-carbon economy in mind.

Physically rebuilding what Vladimir Putin destroyed will have to wait until his war ends. But other aspects of the reconstruction do not have to. Inventories can be created, suppliers prequalified and contracts signed. Away from the worst of the fighting, emergency aid is now needed to help the millions of refugees. With the right support, some relocated businesses can continue. All of this can serve as a best practice test for the greater effort to come.

The first principle is crucial: make Ukraine fit for EU membership with reconstruction. From now on, the infrastructure must “tie Ukraine into the EU internal market,” according to the blueprint. An example is the (re)construction of railway lines with EU standard gauge. Another reason is the unsung victory of Ukrainian and EU electricity suppliers connected the two power grids on March 16, at record speed in the midst of the war.

Reconstruction is also about institutional renewal. According to the plan, the adoption of the common EU rules could bring about a comprehensive “break with the Soviet past”. Institutional reconstruction based on EU rules and governance frameworks would kill two birds with one stone: preparing Ukraine for membership and addressing its pre-existing governance challenges. The economy would also benefit: the prospect of investment disputes being resolved in an EU legal framework should attract more risk-taking capital.

As unimaginable as it may seem amid the current horrors, the plan is right to call for a fully green transportation infrastructure, rebuilding housing to the highest standards of efficiency, and transforming Ukraine’s devastated cities for a zero-carbon economy.

If anything, the authors are not ambitious enough. In some respects Ukraine can trump the EU itself. It can manage capital inflows from reconstruction to create a more equity-based financial market and avoid over-reliance on banks. The blueprint rightly advocates open contracting for reconstruction; similar transparency should be introduced for property registers and (as in Scandinavia) taxation.

The blueprint puts the reconstruction costs at 200 to 500 billion euros. That’s probably an underestimate. But the EU, which should shoulder most of it (and support radical debt cancellation for Kyiv as well as for post-war Germany), should not see this as an expense. EU companies are contracted for infrastructure, housing, transport and more – but should pass on skills and technology to Ukrainians.

It is also an investment in Europe’s values ​​and security. It would seat 44 million people firmly in the liberal-democratic herd and in the social market economy — a historic achievement that could rival the continent’s post-Cold War reunification and the Marshall Plan itself.

The stated aim of George Marshall in his 1947 speech was to “allow the emergence of political and social conditions in which free institutions could exist”. The unspoken goal was to protect European countries from an imperialist dictator in the Kremlin. The plan’s requirement for recipients to remove economic barriers drove the integration that became the EU. All three results are at stake for Ukraine today. It’s time the EU paid for it.

martin.sandbu@ft.com

https://www.ft.com/content/39912ad6-c542-40b3-a254-27f5490f4e77 Ukraine needs an ambitious new Marshall Plan from Europe

Adam Bradshaw

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